The chief economist for HSBC Bank Canada urged Canadian treasury and finance executives to help their companies become stronger business partners with China and look beyond their traditional relationship with the United States.
Speaking at the recent AFP Canadian Forum in Toronto, David Watt stressed that while the United States remains Canada’s top trading partner, the relationship between the two nations is not what it once was. Therefore, Canada—and particularly, Ontario—must look beyond the U.S. to China and other regions if it wants to thrive in this new paradigm.
Watt explained that in Ontario, in contrast to other regions in Canada like British Columbia, the view still persists that Canada should be focusing on relations with the U.S. over China. He likened the Canada/U.S. relationship to the popular Taylor Swift song, “We Are Never Ever Getting Back Together.” He views Ontario as a “jilted boyfriend” still trying to win back the affections of its ex-girlfriend, the U.S.
“We want to get back with the United States, and the United States has moved on,” he said. “Ontario has to realize that the United States will always be a big export market, but the growth and the opportunities are coming from China and elsewhere,” he said.
Moving on to China
China is changing dramatically in recent years. It is no longer the low-wage economy that it once was; low-wage jobs are now moving to other Asian nations. China is shifting away from an export-driven economy and is instead becoming consumer-driven, which provides major opportunities for Canadian exporters. “Yet in Ontario, we seem to be paying little attention to that,” he said. “Only 1.2 percent of our exports go to China, so you can understand that. But I do think we need a fundamental rethink of what we’re going to be doing as a province over the next 10-15 years. And it extends nationally.”
The important thing to remember about China is not the growth number—but what is driving its growth, Watt stressed. When China’s economy was export-led, the currency and wages were cheap. Growth in China is now shifting towards consumption. This massive shift in a massive economy is going to lead to somewhat slower growth rates.
“The quality of growth is going to be better,” Watt said. “The reform process in China is absolutely stunning. We track at least 60 key reforms underway in the Chinese economy at the present time—fundamental reforms that are going to change the way the Chinese economy behaves.”
Canadian businesses, particularly those in Ontario, cannot afford to wait for those reform processes to end, because all of the countries that Canada is competing with are not going to wait. “They’re getting in now, taking advantage of the evolution of the Chinese economy at the present time,” said Watt. “That’s the way we have to start thinking as well. We can’t for the love affair with the United States to be rekindled.”